Newsletter

Free enterprise: Scarce resources smartly spent

With the nation focused on looming spending cuts, almost anything and everything, it seems, is on the cutting block. That includes spending items often described as “untouchable,” such as the military, as well as critical health programs, including those that take care of the mentally ill, not to mention education initiatives.

The last few years have been a laboratory study in what happens when state budgets or federal programs are cut, often in ways that appear indiscriminate.

On the one hand, this has led to additional research on what the long-run effects of such short-run cost-cutting activities may be.

Military leaders in a letter to Congress (http://apne.ws/XZIwiC), have warned that the nation is “on the brink of creating a hollow force;” and one advocacy group has been counting reductions in “non-Medicaid state mental health spending” that amount to $1.6 billion from 2009 to 2011 (see the report here: http://bit.ly/x2k3Dv).

On the other hand, these developments also highlight the need for a constant re-evaluation of what kind of programs justify spending scarce resources, given the best evidence available regarding their efficacy.

One area that has and is receiving considerable scrutiny is the question of how to best reduce achievement gaps in academic performance. Many state and federal efforts are aimed at ensuring that children — who may otherwise not be able to succeed because of economic disadvantages — receive assistance during their academic careers.

Numerous studies seem to indicate that early intervention is preferable to efforts targeted at, for example, teenagers. The reasons for that may be manifold and causality is difficult to establish, but habit formation may be one of them.

One recent study by three economists seems to provide strong evidence that targeted pre-K programs result in significant and positive payoffs with respect to learning outcomes (an earlier version is available at: http://bit.ly/XZJv27).

The authors conducted what amounts to a first large-scale study of “whether modest programs, perhaps the best that can hoped for in the current budgetary environment, are worth implementing.”

Such a caveat had to be included because the study subject, the state-sponsored pre-K program in the state of Texas aimed at bolstering “the academic performance of at risk children,” has received low grades for quality on national surveys.

Thus, the results reported in this study, are encouraging in terms of how scarce resources can be used even if they are not sufficient in creating the ideal programs. Utilizing data from 10 million students over a period of 13 years, the authors find “that having participated in pre-K is associated with increased scores on the math and reading sections of the third grade … Texas Assessment of Academic Skills, reductions in the likelihood of being retained in grade and reductions in the probability of receiving special education services.”

Of course, that shouldn’t be misused as an argument to not aim for the sky when it comes to the education of at-risk children. There are many small-scale and experimental studies, which have shown that larger targeted investments will result in even better long-term outcomes.

However, what this study teaches us is that even in short-term budget crunches, we shouldn’t lose sight of what is important in the long run.

Smartly spending scarce resources on our children’s education is almost always the best long-term solution — for the kids and for the nation.

Dr. Michael Reksulak teaches economics and public finance in Georgia Southern University’s College of Business Administration. He may be reached by email at mreksula@georgiasouthern.edu.